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3.
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10−Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended May 31, 2006.
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from [ ] to [ ].
Commission File No. 001−9195
KB HOME
(Exact name of registrant as specified in its charter)
Delaware 95−3666267
(State of incorporation) (IRS employer identification number)
10990 Wilshire Boulevard
Los Angeles, California 90024
(310) 231−4000
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non−accelerated filer. See definition
of “accelerated filer and large accelerated filer” in Rule 12b−2 of the Exchange Act. (check one):
Large accelerated filer þ Accelerated filer o Non−accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b−2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of May 31, 2006.
Common stock, par value $1.00 per share, 91,318,327 shares outstanding, including 12,412,982 shares held by the Registrant’s
Grantor Stock Ownership Trust and excluding 23,183,707 shares held in treasury.

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Table of Contents
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures normally included in the annual financial
statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.
In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the Company’s financial position as of May 31, 2006, the results of
its consolidated operations for the six months and three months ended May 31, 2006 and 2005, and its consolidated cash flows for
the six months ended May 31, 2006 and 2005. The results of operations for the six months and three months ended May 31, 2006
are not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet at November 30, 2005
has been taken from the audited financial statements as of that date. These unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements for the year ended November 30, 2005, which are contained in the
Company’s 2005 Annual Report to Stockholders on Form 10−K.
Segment information
The Company has identified two reportable segments: construction and financial services. Information for the Company’s
reportable segments is presented in its consolidated statements of income, consolidated balance sheets and related notes to
consolidated financial statements included herein. The Company’s reporting segments follow the same accounting policies used
for the Company’s consolidated financial statements. Management evaluates a segment’s performance based upon a number of
factors, including pretax results.
Earnings per share
Basic earnings per share is calculated by dividing net income by the average number of common shares outstanding for the period.
Diluted earnings per share is calculated by dividing net income by the average number of common shares outstanding including
all dilutive potentially issuable shares under various stock option plans and stock purchase contracts.
The following table presents a reconciliation of average shares outstanding (in thousands):
Six Months Ended May 31, Three Months Ended May 31,
2006 2005 2006 2005
Basic average shares outstanding 80,268 80,938 79,522 81,665
Net effect of stock options assumed to be exercised 4,844 6,812 4,456 6,379
Diluted average shares outstanding 85,112 87,750 83,978 88,044
6

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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies (continued)
Comprehensive Income
The following table presents the components of comprehensive income (in thousands):
Six Months Ended May 31, Three Months Ended May 31,
2006 2005 2006 2005
Net income $381,033 $304,257 $206,572 $181,513
Foreign currency translation adjustment 23,908 (19,480) 20,821 (20,333)
Comprehensive income $404,941 $284,777 $227,393 $161,180
The accumulated balances of other comprehensive income in the balance sheets as of May 31, 2006 and November 30, 2005 are
comprised solely of cumulative foreign currency translation adjustments of $52.6 million and $28.7 million, respectively.
Reclassifications
Certain amounts in the consolidated financial statements of prior periods have been reclassified to conform to the 2006
presentation.
2. Stock−Based Compensation
The Company has stock−based employee compensation plans. Under the Company’s current plans, stock options, associated
limited appreciation rights, restricted shares of common stock, stock units, other equity−based awards and other incentive awards
may be granted to eligible individuals. Stock option awards granted under the plans typically expire 10−15 years after the date of
grant. Among other features, the plans contain provisions which are designed to enable the Company to maintain federal tax
deductibility for its payment of annual compensation in excess of $1.0 million to certain participating executive officers.
Prior to December 1, 2005, the Company accounted for its stock−based compensation plans under the recognition and
measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB
Opinion No. 25”) and related interpretations, as permitted by Statement of Financial Accounting Standards No. 123, “Accounting
for Stock−Based Compensation” (“SFAS No. 123”). Accordingly, no stock−based compensation expense was recognized in the
consolidated income statement for the three months or six months ended May 31, 2005, as all options granted under the
Company’s stock−based employee compensation plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. Effective December 1, 2005, the Company adopted the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123(R), “Share Based Payment” (“SFAS No. 123(R)”) using the modified prospective
transition method. Under that transition method, compensation cost recognized in the three months and six months ended May 31,
2006 includes: (a) compensation cost for all share−based payments granted prior to, but not yet vested as of December 1, 2005,
based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation
cost for all share−based payments granted subsequent to December 1, 2005, based on the grant date fair value estimated in
accordance with the provisions of SFAS No. 123(R). The fair value for each option was estimated on the date of grant using the
Black−Scholes option−pricing model with the following weighted average assumptions used for grants during the quarter ended
May 31, 2006: a risk free interest rate of 4.84%; an expected volatility factor for the market price of the Company’s common stock
of 41.06%; a dividend yield of 1.95%; and an expected life of five years. The weighted average fair value of each option granted
during the quarter ended May 31, 2006 was $24.82. In accordance with the modified prospective transition method, results for
prior periods have not been
7

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Table of Contents
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Stock−Based Compensation (continued)
restated. As a result of adopting SFAS No. 123(R) on December 1, 2005, the Company’s pretax income and net income for the
three months ended May 31, 2006 were $4.0 million and $2.6 million lower, respectively, and its basic and diluted earnings per
share for the period were $.03 and $.02 lower, respectively, than if it had continued to account for stock−based compensation
under APB Opinion No. 25. The Company’s pretax income and net income for the six months ended May 31, 2006 were
$8.8 million and $5.7 million lower, respectively, and its basic and diluted earnings per share for the period were $.07 and $.05
lower, respectively, than if it had continued to account for stock−based compensation under APB Opinion No. 25.
Prior to the adoption of SFAS No. 123(R), the Company presented all tax benefits of deductions resulting from the exercise of
stock options as operating cash flows in the consolidated statements of cash flows. SFAS No. 123(R) requires the tax benefits
resulting from tax deductions in excess of the compensation cost recognized for those options (“excess tax benefits”) to be
classified and reported as both an operating cash outflow and a financing cash inflow upon adoption. As a result, the Company
classified $9.9 million of excess tax benefits as an operating cash outflow and a financing cash inflow for the six months ended
May 31, 2006.
The following table illustrates the effect (in thousands, except per share amounts) on net income and basic and diluted earnings
per share if the fair value recognition provisions of SFAS No. 123(R) had been applied to all outstanding and unvested awards in
the six months and three months ended May 31, 2005. For purposes of this pro forma disclosure, the value of the options was
estimated using the Black−Scholes option−pricing model with the following weighted average assumptions used for grants during
the quarter ended May 31, 2005: a risk free interest rate of 3.85%; an expected volatility factor for the market price of the
Company’s common stock of 43.60%; a dividend yield of 1.11%; and an expected life of seven years. The weighted average fair
value of each option granted during the quarter ended May 31, 2005 was $27.07.
Six Months Three Months
Ended Ended
May 31, May 31,
2005 2005
Net income−as reported $ 304,257 $ 181,513
Deduct stock−based compensation expense determined using the fair value method, net
of related tax effects (9,763) (5,229)
Pro forma net income $ 294,494 $ 176,284
Earnings per share:
Basic−as reported $ 3.76 $ 2.22
Basic−pro forma 3.64 2.16
Diluted−as reported 3.47 2.06
Diluted−pro forma 3.42 2.02
8

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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Consolidation of Variable Interest Entities (continued)
returns, or both, is determined to be the primary beneficiary of the VIE and must consolidate the entity in its financial statements.
In the ordinary course of its business, the Company enters into land option contracts in order to procure land for the construction of
homes. Under such land option contracts, the Company will fund a specified option deposit or earnest money deposit in
consideration for the right to purchase land in the future, usually at a predetermined price. Under the requirements of FASB
Interpretation No. 46(R), certain of the Company’s land option contracts may create a variable interest for the Company, with the
land seller being identified as a VIE.
In compliance with FASB Interpretation No. 46(R), the Company analyzed its land option contracts and other contractual
arrangements and has consolidated the fair value of certain VIEs from which the Company is purchasing land under option
contracts. The consolidation of these VIEs, where the Company was determined to be the primary beneficiary, added
$358.3 million to inventory and other liabilities in the Company’s consolidated balance sheet at May 31, 2006. The Company’s
cash deposits related to these land option contracts totaled $49.7 million at May 31, 2006. Creditors, if any, of these VIEs have no
recourse against the Company. As of May 31, 2006, excluding consolidated VIEs, the Company had cash deposits totaling
$154.3 million which were associated with land option contracts having an aggregate purchase price of $4.20 billion.
6. Goodwill
The changes in the carrying amount of goodwill for the six months ended May 31, 2006, are as follows (in thousands):
2006
Balance, beginning of period $242,589
Goodwill acquired —
Foreign currency translation 4,582
Balance, end of period $247,171
7. Mortgages and Notes Payable
On April 3, 2006, pursuant to its universal shelf registration statement filed with the Securities and Exchange Commission on
November 12, 2004 (the “2004 Shelf Registration”), the Company issued $300.0 million of 7 1/4% Senior Notes (the “$300
Million Senior Notes”) at 99.486% of the principal amount of the notes. The notes, which are due June 15, 2018 with interest
payable semi−annually, represent senior unsecured obligations and rank equally in right of payment with all of the Company’s
existing and future senior unsecured indebtedness and are guaranteed by certain of the Company’s domestic subsidiaries
(“Guarantor Subsidiaries”). The $300 Million Senior Notes may be redeemed, in whole at any time or from time to time in part, at
a price equal to the greater of (1) 100% of their principal amount and (2) the sum of the present values of the remaining scheduled
payments of principal and interest on the notes to be redeemed discounted at a defined rate, plus in each case, accrued and unpaid
interest to the applicable redemption date. The Company used all of the proceeds from the $300 Million Senior Notes to repay
borrowings under its $1.50 billion unsecured revolving credit facility (the “$1.5 Billion Credit Facility”).
On April 12, 2006, the Company entered into an unsecured $400.0 million term loan (the “$400 Million Term Loan”), which
provides for interest to be paid quarterly at the London Interbank Offered Rate plus an applicable spread. The principal balance of
the $400 Million Term Loan is due and payable in full on April 11, 2011.
11

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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Mortgages and Notes Payable (continued)
Under the $400 Million Term Loan agreement, the Company is required, among other things, to maintain certain financial
statement ratios and a minimum net worth and is subject to limitations on acquisitions, inventories and indebtedness. The
Company believes that it is in compliance with these requirements and is not aware of any covenant violations. The Company used
all of the proceeds from the $400 Million Term Loan to repay borrowings under the $1.5 Billion Credit Facility.
8. Commitments and Contingencies
The Company provides a limited warranty on all of its homes. The specific terms and conditions of warranties vary depending
upon the market in which the Company does business. For homes sold in the United States, the Company generally provides a
structural warranty of 10 years, a warranty on electrical, heating, cooling, plumbing and other building systems each varying from
two to five years based on geographic market and state law, and a warranty of one year for other components of the home such as
appliances. The Company estimates the costs that may be incurred under each limited warranty and records a liability in the
amount of such costs at the time the revenue associated with the sale of each home is recognized. Factors that affect the
Company’s warranty liability include the number of homes sold, historical and anticipated rates of warranty claims, and cost per
claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company’s warranty liability are as follows (in thousands):
Six Months Ended May 31,
2006 2005
Balance, beginning of period $131,875 $ 99,659
Warranties issued 35,067 35,918
Payments and adjustments (31,680) (25,210)
Balance, end of period $135,262 $110,367
In the normal course of its business, the Company issues certain representations, warranties and guarantees related to its home
sales, land sales and commercial construction that may be affected by FASB Interpretation No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Based on historical evidence,
the Company does not believe any of these representations, warranties or guarantees would result in a material effect on its
consolidated financial position or results of operations.
The Company is often required to obtain bonds and letters of credit in support of its obligations to various municipalities and other
government agencies with respect to subdivision improvements, including roads, sewers and water, among other things. At May 31,
2006, the Company had outstanding approximately $1.21 billion and $437.1 million of performance bonds and letters of credit,
respectively. In the event any such bonds or letters of credit are called, the Company would be obligated to reimburse the issuer of
the bond or letter of credit. However, the Company does not believe that any currently outstanding bonds or letters of credit will be
called.
Borrowings outstanding and letters of credit issued under the Company’s $1.5 Billion Credit Facility are guaranteed by the
Guarantor Subsidiaries.
12

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Table of Contents
KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Commitments and Contingencies (continued)
The Company conducts a portion of its land acquisition, development and other residential and commercial activities through
unconsolidated joint ventures. These unconsolidated joint ventures had total assets of $2.47 billion and outstanding secured
construction debt of approximately $1.39 billion at May 31, 2006. In certain instances, the Company provides varying levels of
guarantees on the debt of unconsolidated joint ventures. When the Company or its subsidiaries provide a guarantee, the
unconsolidated joint venture generally receives more favorable terms from lenders than would otherwise be available to it. At
May 31, 2006, the Company had payment guarantees related to the third−party debt of three of its unconsolidated joint ventures.
One of the joint ventures had aggregate third−party debt of $439.6 million at May 31, 2006, of which each of the joint venture
partners guaranteed its pro rata share. The Company’s share of the payment guarantee, which is triggered only in the event of
bankruptcy of the joint venture, was 49% or $213.2 million. The remaining two unconsolidated joint ventures had total
third−party debt of $7.9 million at May 31, 2006, of which each of the joint venture partners guaranteed its pro rata share. The
Company’s share of this guarantee was 50% or $4.0 million. The Company’s pro rata share of limited maintenance guarantees of
unconsolidated entity debt totaled $176.9 million at May 31, 2006. The limited maintenance guarantees apply only if the value of
the collateral (generally land and improvements) is less than a specific percentage of the loan balance. If the Company is required
to make a payment under a limited maintenance guarantee to bring the value of the collateral above the specified percentage of
the loan balance, the payment would constitute a capital contribution and/or loan to the affected unconsolidated joint venture and
increase the Company’s share of any funds such unconsolidated joint venture distributes.
In January 2003, the Company received a request for information from the U.S. Environmental Protection Agency (“EPA”)
pursuant to Section 308 of the Clean Water Act. Several other public homebuilders have received similar requests. The request
sought information about storm water discharge practices at certain of the Company’s construction sites, and the Company
provided information pursuant to the request. In May 2004, on behalf of the EPA, the U.S. Department of Justice (“DOJ”)
tentatively asserted that certain regulatory requirements applicable to storm water discharges were violated at certain of the
Company’s construction sites, and civil penalties and injunctive relief might be warranted. The DOJ has also proposed certain
steps it would expect the Company to take in the future relating to compliance with the EPA’s requirements applicable to storm
water discharges. The Company has defenses to the claims that have been asserted and is exploring methods of resolving the
matter. The Company believes that the costs associated with the claims are not likely to be material to its consolidated financial
position or results of operations.
9. Stockholders’ Equity
On December 8, 2005, the Company’s board of directors increased the annual cash dividend on the Company’s common stock to
$1.00 per share from $.75 per share. The first quarterly dividend at the increased rate of $.25 per share was paid on February 23,
2006 to stockholders of record on February 9, 2006.
The Company’s board of directors also authorized a share repurchase program on December 8, 2005 under which the Company
may repurchase up to 10 million shares of its common stock. Acquisitions under the share repurchase program may be made in
open market or private transactions and will be made from time to time at management’s discretion based on its assessment of
market conditions and buying opportunities. During the six months ended May 31, 2006, the Company repurchased four million
shares of its common stock under the share repurchase program at an aggregate price of $287.4 million. In addition to the share
repurchases in the first half of 2006, which consisted of open market transactions, the Company also retired $12.5 million of
common stock obtained in connection with the satisfaction of employee withholding taxes on vested restricted stock.
10. Recent Accounting Pronouncements
In December 2004, the FASB issued Staff Position 109−1 (“FSP 109−1”), “Application of FASB Statement No. 109, Accounting
for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of
2004.” The American Jobs Creation Act provides a 3% deduction on “qualified
13

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KB HOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Recent Accounting Pronouncements (continued)
domestic production activities income,” subject to certain limitations and is effective for the Company’s fiscal year ending
November 30, 2006. This deduction provides a tax savings against income attributable to domestic production activities,
including the construction of real property. When fully phased−in, the deduction will be 9% of “qualified domestic production
activities income,” subject to certain limitations. Based on the guidance provided by FSP 109−1, this deduction was accounted for
as a special deduction under Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” and reduced
income tax expense. An estimate of the tax benefit resulting from the new deduction is reflected in the Company’s effective
income tax rate for the three months and six months ended May 31, 2006. The Company currently estimates the reduction in its
effective income tax rate for the year ending November 30, 2006 to be approximately .8%.
In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error
Corrections,” (“SFAS No. 154”) which replaces Accounting Principles Board Opinion No. 20, “Accounting Changes” and
Statement of Financial Accounting Standards No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and
changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 requires
retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to
determine either the period−specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not
expected to have a material impact on the Company’s consolidated financial position or results of operations.
In June 2005, the Emerging Issues Task Force (“EITF”) released Issue No. 04−5 “Determining Whether a General Partner, or the
General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights”
(“EITF 04−5”). EITF 04−5 provides guidance in determining whether a general partner controls a limited partnership and
therefore should consolidate the limited partnership. EITF 04−5 states that the general partner in a limited partnership is
presumed to control that limited partnership and that the presumption may be overcome if the limited partners have either (1) the
substantive ability to dissolve or liquidate the limited partnership or otherwise remove the general partner without cause, or
(2) substantive participating rights. The effective date for applying the guidance in EITF 04−5 was (1) June 29, 2005 for all new
limited partnerships and existing limited partnerships for which the partnership agreement was modified after that date, and (2) no
later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005 for all other limited
partnerships. Implementation of EITF 04−5 is not expected to have a material impact on the Company’s consolidated financial
position or results of operations.
11. Supplemental Guarantor Information
The Company’s obligations to pay principal, premium, if any, and interest under certain debt instruments are guaranteed on a
joint and several basis by the Guarantor Subsidiaries. The guarantees are full and unconditional and the Guarantor Subsidiaries
are 100% owned by KB Home. The Company has determined that separate, full financial statements of the Guarantor
Subsidiaries would not be material to investors and, accordingly, supplemental financial information for the Guarantor
Subsidiaries is presented.
14

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
OVERVIEW
Revenues are generated from (i) our construction operations in the United States and France and (ii) our domestic financial services
operations. The following table presents a summary of our results by financial reporting segment (in thousands, except per share
amounts):
Six Months Ended May 31, Three Months Ended May 31,
2006 2005 2006 2005
Revenues:
Construction $4,774,537 $3,748,806 $2,587,213 $2,120,313
Financial services 9,184 17,640 4,858 10,013
Total $4,783,721 $3,766,446 $2,592,071 $2,130,326
Pretax income:
Construction $ 578,819 $ 460,079 $ 314,187 $ 274,638
Financial services 9,814 978 6,085 375
Total pretax income 588,633 461,057 320,272 275,013
Income taxes (207,600) (156,800) (113,700) (93,500)
Net income $ 381,033 $ 304,257 $ 206,572 $ 181,513
Diluted earnings per share $ 4.48 $ 3.47 $ 2.46 $ 2.06
Our total revenues of $2.59 billion for the three months ended May 31, 2006 rose 22% from $2.13 billion for the three months ended
May 31, 2005. For the six months ended May 31, 2006, total revenues increased 27% to $4.78 billion from $3.77 billion in the
year−earlier period. The increase in total revenues in the second quarter and first half of 2006 was due to growth in housing revenues
resulting from higher unit deliveries and a higher average selling price compared to the same periods of 2005. We delivered 9,032
homes in the second quarter of 2006, up 6% from the 8,535 homes delivered in the year−earlier quarter. The overall average selling
price of our homes rose 15% to $284,700 in the second quarter of 2006 from $247,800 in the corresponding period of 2005. During
the six months ended May 31, 2006, we delivered 16,937 homes, up 10% from the 15,382 homes delivered in the corresponding
period of 2005. Our average selling price for the six months ended May 31, 2006 rose to $280,700, up 16% from $242,700 in the
year−earlier period. We use the terms “home” and “unit” to refer to a single−family residence, whether it is a detached or attached
single−family home, town home or condominium.
Financial services revenues totaled $4.9 million in the second quarter of 2006 compared to $10.0 million in the second quarter of
2005. In the first half of 2006, revenues from our financial services segment totaled $9.2 million compared to $17.6 million in the first
half of 2005. The decrease in financial services revenues reflects the sale of the mortgage banking operations of our wholly owned
financial services subsidiary, KB Home Mortgage Company (“KBHMC”), in the fourth quarter of 2005.
Net income for the second quarter of 2006 increased 14% to $206.5 million from $181.5 million in the corresponding period of 2005,
driven by revenue growth, partly offset by a decrease in the operating income margin in our construction operations. Our diluted
earnings per share for the quarter ended May 31, 2006 rose 19% to $2.46 from $2.06 for the year−earlier quarter. For the first six
months of 2006, net income increased 25% to $381.0 million from $304.3 million in the year−earlier period. Diluted earnings per
share for the six−month period increased 29% to $4.48 in 2006 from $3.47 in 2005.
The dollar value of our backlog at May 31, 2006 increased 13% to approximately $7.66 billion on 27,412 units, up from
approximately $6.79 billion on 27,089 units at May 31, 2005. Backlog value increased in each of our geographic regions on a
year−over−year basis.
19

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The following table presents residential information in terms of unit deliveries to home buyers and net orders taken by geographical
region for the three months and six months ended May 31, 2006 and 2005, together with backlog data in terms of units and value by
geographical region as of May 31, 2006 and 2005:
Three Months Ended May 31,
Deliveries Net Orders
Region 2006 2005 2006 2005
West Coast 1,579 1,417 1,628 2,025
Southwest 1,813 2,033 1,239 2,457
Central 2,183 2,117 2,723 3,201
Southeast 1,827 1,665 1,899 2,523
France 1,630 1,303 2,419 2,084
Total 9,032 8,535 9,908 12,290
Unconsolidated joint ventures 189 143 66 41
Six Months Ended May 31, May 31,
Backlog − Value
Deliveries Net Orders Backlog − Units In Thousands
Region 2006 2005 2006 2005 2006 2005 2006 2005
West Coast 3,025 2,512 3,027 3,882 4,256 4,837 $2,200,413 $2,150,227
Southwest 3,365 3,605 2,731 4,597 4,794 5,544 1,473,792 1,428,789
Central 4,018 3,990 5,018 5,742 5,945 5,810 947,562 903,725
Southeast 3,437 2,979 3,753 4,364 5,929 5,665 1,499,091 1,211,460
France 3,092 2,296 4,098 3,606 6,488 5,233 1,537,656 1,098,930
Total 16,937 15,382 18,627 22,191 27,412 27,089 $7,658,514 $6,793,131
Unconsolidated joint
ventures 265 353 275 96 397 238 $ 92,898 $ 40,460
Construction Revenues
Construction revenues increased by $466.9 million, or 22%, to $2.59 billion in the three months ended May 31, 2006 from
$2.12 billion in the corresponding period of 2005. For the six months ended May 31, 2006, construction revenues increased by
$1.02 billion, or 27%, to $4.77 billion from $3.75 billion for the six months ended May 31, 2005. The increase in total revenues for
the three−month and six−month periods of 2006 compared to the corresponding periods of 2005 resulted from higher housing
revenues. Our construction revenues are generated from operations in the United States and France. Our U.S. operating divisions are
grouped into four geographic regions: “West Coast” – California; “Southwest” – Arizona, Nevada and New Mexico; “Central” –
Colorado, Illinois, Indiana, Louisiana and Texas; and “Southeast” – Florida, Georgia, Maryland, North Carolina, South Carolina and
Virginia.
Housing Revenues
Housing revenues for the three months ended May 31, 2006 reached $2.57 billion, increasing $456.6 million, or 22%, from
$2.11 billion in the year−earlier period. The increase was driven by a 6% growth in unit deliveries to 9,032 and a 15% increase in our
average selling price to $284,700, up from 8,535 and $247,800, respectively, in the year−earlier period. For the six months ended
May 31, 2006, housing revenues rose to $4.75 billion, up 27% from $3.73 billion for the six months ended May 31, 2005, on a 10%
increase in unit deliveries to 16,937 units from 15,382 units in the year−earlier period and a 16% increase in the average selling price.
Our average selling
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price for the six−month period was $280,700 in 2006 and $242,700 in 2005. Each of our geographic regions generated
year−over−year growth in housing revenues and average selling price in the second quarter and first half of 2006. The higher average
selling prices in our domestic regions in 2006 resulted from favorable product mix and higher prices throughout the West Coast,
Southwest and Southeast regions, and increases in lot premiums and options sold through our KB Home Studios. Housing revenues
from our U.S. operations rose 19% to $2.19 billion on 7,402 unit deliveries in the second quarter of 2006 from $1.84 billion on 7,232
unit deliveries in the second quarter of 2005. Housing operations in France generated $385.5 million of housing revenues in the
second quarter of 2006, up 41% from the year−earlier quarter. For the six months ended May 31, 2006, housing revenues from our
U.S. operations rose 26% to $4.06 billion from $3.23 billion for the year−earlier period as unit deliveries in the first half of 2006
increased 6% to 13,845 from 13,086 in the year−earlier period. Housing operations in France generated revenues of $692.6 million in
the first half of 2006, up 39% from the first half of 2005.
• West Coast – In our West Coast region, housing revenues for the quarter ended May 31, 2006 increased 24% to $790.9 million, up
from $637.8 million in the year−earlier quarter, due to an 11% increase in unit deliveries to 1,579 from 1,417 and an 11% increase
in the average selling price to $500,900 from $450,100. For the six months ended May 31, 2006, West Coast housing revenues rose
32% to $1.49 billion from $1.13 billion in the year−earlier period due to a 20% increase in unit deliveries to 3,025 from 2,512 and a
10% increase in the average selling price to $494,000 from $449,700.
• Southwest – Housing revenues from our Southwest region rose 11% to $583.1 million in the second quarter of 2006 from
$525.4 million in the second quarter of 2005 due to a 25% increase in the average selling price to $321,600 from $258,400, partly
offset by an 11% decrease in unit deliveries. Unit deliveries in the region totaled 1,813 in the second quarter of 2006 versus 2,033
in the second quarter of 2005. In the first half of 2006, Southwest housing revenues increased 21% to $1.08 billion from
$892.2 million in the first half of 2005, reflecting a 30% increase in the average selling price to $321,600 from $247,500, partially
offset by a 7% decrease in unit deliveries to 3,365 from 3,605.
• Central – In our Central region, second quarter housing revenues increased 6% to $353.4 million in 2006 from $335.0 million in
2005 due to a 3.1% increase in unit deliveries to 2,183 from 2,117 and a 2% increase in the average selling price to $161,900 from
$158,300. In the first half of 2006, housing revenues in our Central region rose 4% to $642.3 million from $618.7 million in the
first half of 2005 primarily due a 3% increase in the average selling price to $159,900 from $155,100. Unit deliveries in the Central
region totaled 4,018 in the first half of 2006, up slightly from 3,990 in the year−earlier period.
• Southeast – Housing revenues in our Southeast region rose 34% to $458.4 million in the second quarter of 2006 from
$342.5 million in the corresponding period of 2005 due to a 10% increase in unit deliveries to 1,827 from 1,665 and a 22% increase
in the average selling price to $250,900 from $205,700. In the first half of 2006, housing revenues in our Southeast region grew
42% to $843.2 million from $594.0 million in the year−earlier period due to a 15% increase in unit deliveries to 3,437 from 2,979
and a 23% increase in the average selling price to $245,300 from $199,400.
• France – Revenues from French housing operations increased 41% to $385.5 million in the three months ended May 31, 2006 from
$274.1 million in the year−earlier period, due to a 25% growth in unit deliveries and a 12% increase in the average selling price.
French unit deliveries increased to 1,630 in the second quarter of 2006 from 1,303 in the second quarter of 2005, while the average
selling price increased to $236,500 from $210,400, primarily due to a shift in product mix. For the six months ended May 31, 2006,
French housing revenues rose 39% to $692.6 million from $498.2 million in the year−earlier period. The increase resulted from
35% growth in unit deliveries to 3,092 from 2,296 and a 3% increase in the average selling price to $224,000 from $217,000.
Commercial Revenues
Our commercial business in France generated no revenues in 2006 compared to $.6 million and $2.8 million generated in the three
months and six months ended May 31, 2005, respectively. The decrease in commercial revenues in the second quarter and first half of
2006 reflected diminished activity from our commercial operations in France.
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Land Revenues
Our revenues from land sales totaled $15.8 million in the second quarter of 2006 and $4.9 million in the second quarter of 2005. In the
first half of 2006, revenues from land sales increased to $20.0 million from $13.1 million in the first half of 2005. Generally, land sale
revenues fluctuate with our decisions to maintain or decrease our land ownership position in certain markets and prevailing market
conditions.
Operating income
Operating income increased $47.0 million, or 16%, to $341.8 million in the three months ended May 31, 2006 from $294.8 million in
the corresponding period of 2005 due to higher housing revenues, partly offset by a lower operating margin. As a percentage of
construction revenues, operating income decreased .7 percentage points to 13.2% in the second quarter of 2006 from 13.9% in the
second quarter of 2005 due to a decrease in our housing gross margin. Gross profits rose $98.0 million, or 17%, to $666.0 million in
the second quarter of 2006 from $568.0 million in the year−earlier quarter. Gross profits as a percentage of construction revenues
decreased mainly due to a decrease in our housing gross margin to 25.8% in the second quarter of 2006 from 26.8% for the same
period of 2005. Commercial operations in France generated no profits during the three months ended May 31, 2006 compared with
$1.1 million generated during the three months ended May 31, 2005. Company−wide land sales generated profits of $1.3 million and
$.7 million in the second quarter of 2006 and 2005, respectively.
Selling, general and administrative expenses increased to $324.2 million in the three months ended May 31, 2006 from $273.3 million
in the corresponding 2005 period. As a percentage of housing revenues, selling, general and administrative expenses improved to
12.6% in the second quarter of 2006 from 12.9% in the year−earlier period.
Operating income increased $125.6 million, or 26%, to $616.0 million in the six months ended May 31, 2006 from $490.4 million in
the corresponding period of 2005 driven by higher housing revenues, partly offset by a lower operating margin. As a percentage of
construction revenues, operating income decreased slightly to 12.9% in the first half of 2006 from 13.1% in the first half of 2005 due
to a decrease in our housing gross margin. Gross profits rose $250.9 million, or 25%, to $1.24 billion in the first six months of 2006
from $984.2 million in the year−earlier period. Gross profits as a percentage of construction revenues decreased mainly due to a
decrease in our housing gross margin to 25.9% in the first half of 2006 from 26.2% for the same period of 2005. Commercial
operations in France generated no profits during the six months ended May 31, 2006 compared with $1.5 million generated during the
six months ended May 31, 2005. Company−wide land sales generated profits of $2.3 million and $4.6 million in the first six months
of 2006 and 2005, respectively.
Selling, general and administrative expenses increased to $619.1 million in the six months ended May 31, 2006 from $493.8 million in
the corresponding 2005 period. As a percentage of housing revenues, selling, general and administrative expenses improved to 13.0%
in the first half of 2006 from 13.2% in the year−earlier period.
Interest Income
Interest income totaled $1.1 million in the second quarter of 2006 and $.8 million in the second quarter of 2005. For the first half of
2006, interest income totaled $2.3 million compared to $1.8 million in the first half of 2005. Generally, increases and decreases in
interest income are attributable to changes in the interest−bearing average balances of short−term investments and mortgages
receivable as well as fluctuations in interest rates.
Interest Expense
Interest expense (net of amounts capitalized) totaled $10.3 million in the second quarter of 2006, up from $4.0 million for the same
period of 2005. Gross interest incurred during the three months ended May 31, 2006 increased $17.9 million from the amount incurred
in the corresponding period of 2005 due to higher debt levels in 2006. The percentage of interest capitalized was 84% in the second
quarter of 2006 and 91% in the second quarter of 2005. In the first half of 2006, interest expense (net of amounts capitalized) totaled
$15.0 million, up from $6.4 million for the same period of 2005. Gross interest incurred during the six months ended May 31, 2006
increased $28.2 million from the amount incurred in the corresponding period of 2005 as a result of higher debt levels in 2006. The
percentage of interest capitalized in the first half of 2006 decreased to 87% from 93% in the first half of 2005. The decrease in the
percentage of interest capitalized in the 2006 periods resulted from slightly higher interest rates and debt levels increasing at a higher
rate than land under development due to debt incurred for non−capitalized items such as share repurchases.
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